Working Paper: NBER ID: w14634
Authors: Guy David; Sara Markowitz; Seth Richards
Abstract: This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions.
Keywords: pharmaceutical marketing; adverse drug events; FDA regulation; promotion and regulation
JEL Codes: I1; K0; K2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased levels of pharmaceutical promotion (H51) | Worsening match between drugs and patients (I12) |
| Worsening match between drugs and patients (I12) | Increase in reporting of adverse medical events (I18) |
| Increased levels of pharmaceutical promotion (H51) | Increase in reporting of adverse medical events (I18) |
| Higher rates of reported adverse events (I18) | Increased regulatory actions by the FDA (G18) |